Earlier this week, the Census Bureau released its official 2022 trade data. As our Cato colleague Scott Lincicome noted, the overall data continues to undercut the popular narrative pushed by politicians and pundits about the demise of globalization. On a more granular level, the data are revealing for U.S.-China trade watchers.
First, for all of the talk about “strategic decoupling,” trade ties remain strong between the United States and China. Over the last five years, policymakers in Washington and Beijing have erected large trade barriers between the two countries: tariffs and reprisals have gone back and forth; heavy-handed industrial policies in the United States and China aimed at boosting domestic production of “strategic” goods ostensibly to lessen reliance on the other; new export controls imposed by Washington on semiconductors and related products. Likewise, Beijing’s strict COVID-Zero policies shuttered large swaths of the Chinese economy in 2022. Despite these moves, data on two-way goods trade between the United States and China reached $643.8 billion in 2022, in real terms.1 While this number is slightly lower than the total real value of U.S.-China trade in 2021, it is a far cry from what one would expect were a broad “decoupling” between the two economies be occurring.
Indeed, that two-way trade continues at such high volumes is a reminder that trade takes place between people and not governments. And people in the United States and China are showing that they do not necessarily agree with their governments’ attempts to force autarky or decoupling upon them. As former Assistant United States Trade Representative Ed Gresser told Politico, “The decisions of consumers so far have been more powerful than governments.”
To the extent that supply chains have left China, other trade data suggest that did so only to relocate in other foreign countries—not the United States. Indeed, the real decline in imports from China in 2021–22 was more than offset by a real increase in total U.S. imports from other countries in Southeast Asia and other large exporters around the world.
Second, Americans are paying the tariffs. The Trump-Biden tariffs currently cover about two-thirds of all imports from China at an average rate of nearly 20 percent. Recent research shows the tariffs and retaliation constitute an even larger share of GDP than the infamous Smoot-Hawley tariffs of 1930. As the numbers above suggest, if the goal of the tariffs is to divert large amounts of trade away from China, they have failed. Instead, to the extent covered by tariffs, Americans—both firms and families—are simply paying more for the products in question at a time of fairly high inflation.
To be clear, the United States has very legitimate criticisms of a number of Chinese trade and investment practices. Yet Washington’s policy response—heavy tariffs, subsidies to favored industries, and tight export controls—is misguided. In a forthcoming Cato Policy Analysis, Scott Linciciome and Clark Packard make a number of policy recommendations to outcompete China economically in the 21st century. Rather than mimicking China’s heavy-handed interventionism, they argue that policymakers should rely on America’s traditional strengths of a relatively free market: openness to trade, immigration and global capital flows; and light touch regulation, particularly with respect to the technology industry, which is at the nexus of the U.S.-China competition.
Perhaps policymakers should be more circumspect about trade and investment in certain sensitive sectors, but the reality is that the vast majority of trade between the people of the United States and China is entirely harmless. Despite broader geopolitical tensions, 2022 trade data belies the popular argument that the world’s two largest economies are decoupling.
1. The Census Bureau only reports bilateral trade in nominal (current) U.S. dollars. We used the Bureau of Economic Analysis’ Personal Consumption Expenditures index for goods to transform this data to real (constant) U.S. dollars.
